Mediaboss Marketing

Alphabet (GOOGL) easily beat all fourth-quarter expectations, driven by a continuing resurgence in ad spending, growing demand for cloud, the overall digital transformation by many businesses, and the cost control that it initiated when the pandemic hit. Management expects tougher comps in the second half of this year but remains confident in further strong growth in its cloud segment. The firm will also return to more-aggressive hiring and overall spending on research and development and sales and marketing, as well as significantly higher capital expenditure. We remain confident that accelerating growth in brand ad spending along with the return of ad spending in the travel vertical in the second half will more than offset a possible slowdown in direct-response ad revenue growth, especially at YouTube. In cloud, while we expect Alphabet to generate operating losses as it continues to scale that business, we anticipate profitability by 2024 as we think 32% average annual growth during the next five years will create operating leverage.

After adjusting our model to reflect higher ad spending and continuing robust growth in cloud, and taking into account the time value of money, our fair value estimate is now 32% higher, at $2,605 per share. Alphabet remains one of our favorite names in the Internet and social media space.

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YouTube and Cloud Lead the Way for Alphabet - Morningstar.com